The Ultimate Guide To Bitcoin For Beginners: Your Cryptocurrency Questions Answered
The Ultimate Guide To Bitcoin For Beginners: Your Cryptocurrency Questions Answered
The Ultimate Guide To Bitcoin For Beginners: Your Cryptocurrency Questions Answered
www.apogeeinvent.com/blog/C/2017/11/27/The-Ultimate-Guide-to-Bitcoin-for-Beginners
Read on for these and other answers to all your basic questions about
bitcoin and cryptocurrency.
Lately we’ve been talking a lot about bitcoins since we’ve started accepting this
cryptocurrency as payment from our clients, and have built our eCommerce software to
include this currency as a payment option so our clients can also begin accepting bitcoin and
paying distributors using bitcoin.
We feel there are strong benefits for both small business and network marketing industries to
have the option of using bitcoin.
Several people have responded with “bitcoins have no value”, “its all hype”, “it’s a scam”, or
“its too good to be true” type of statements. It is easy to mistrust bitcoin because it is new,
unregulated, and challenges our established concepts of currency. But change is a
necessary part of the evolution of our world, and I believe cryptocurrency is change driven
by the Internet and our increasingly globalized economy.
Like the Internet or a car, you don’t need to understand bitcoin to use it. But by being more
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educated, it might help build trust in the evolutionary currency. I thought it would be worth
my time to talk a little more about bitcoins--and cryptocurrency in general--and clear up
some of the confusion.
What is a bitcoin?
Bitcoin is a digital currency (also called crypto-currency) that is not backed by any country's
central bank or government. This form of payment first came into use in 2009 and has been
growing in popularity due to its ease of international use. The 150 billion dollar
cryptocurrency market has jumped over 350% just since the beginning of this year.
I have an apple. I give it to you. We both know without a doubt that the apple is now in your
possession.
What about a digital apple? If I send it to you, how do you know I didn’t send a copy to
someone else?
We could keep track in a ledger. But couldn’t someone make changes to that ledger? Not if
that ledger was open source, and thousands of people had the ledger themselves. And
every time another exchange is made, it is checked against all of the thousands of ledgers
held by people all over the world. It would be very difficult to cheat the system, right?
That is how bitcoin works. Every transaction is checked against the thousands of ledgers
held by people all over the world. And the people who are verifying these transactions earn a
fraction of bitcoin for their work. Nik Custodio summarizes it perfectly in his article “Explain
Bitcoin Like I’m 5”:
“So, did you see what happened? What does the public ledger enable?
1) It’s open source remember? The total number of apples was defined in the public ledger
at the beginning. I know the exact amount that exists. Within the system, I know they are
limited(scarce).
2) When I make an exchange I now know that digital apple certifiably left my possession and
is now completely yours. I used to not be able to say that about digital things. It will be
updated and verified by the public ledger.
3) Because it’s a public ledger, I didn’t need a third-party to make sure I didn’t cheat, or make
extra copies for myself, or send apples twice, or thrice…”
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Read this explanation in more detail in Free Code Camp’s post on Medium, it is much more
entertaining than my summary of his excellent description of bitcoin.
What is a blockchain?
The blockchain is the true genius behind bitcoin. Here is a quick video that shows how a
blockchain works and why it has such value.
According to authors Don and Alex Tapscott of Blockchain Revolution, “The blockchain is an
incorruptible digital ledger of economic transactions that can be programmed to record not
just financial transactions but virtually everything of value.”
This is the network of ledgers we talked about above in our apple example.
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Source
As of the writing of this blog, 1 Bitcoin has spiked to over 10,000 USD, nearly double its
value a few weeks ago. Just like a dollar can be divided into cents, a fraction of a bitcoin can
be sent.
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Source
Bitcoin is by far the most popular cryptocurrency, but it certainly is not the only one. There
are many coins, and some are quite different from bitcoin, such as ethereum, which is an
actual platform and not just a digital currency.
I won’t get into that here. But the value of the currency is related to the scarcity, as it must
be generated by these complex mathematical problems that requires significant resources.
A number of factors play a role in the difficulty of mining a coin, and the expenses involved.
You can read more about mining and even calculate your own expenses if you’re interested
in learning more.
The value of cryptocurrencies, particularly bitcoin, are at an amazing high and continue to
climb. At the same time, the cost of mining the coins are also increasing astronomically.
Getting Bitcoin
In a recent conversation about bitcoin, I was asked “So if Bitcoin is worth so much, and
mining it requires expensive hardware, is there a way for the average person to use it?”
You can accept bitcoin as payment from others for goods or services.
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For the average person using cryptocurrency is as easy as:
Get a digital wallet to store the currency. There are many different wallets to choose from,
you can see a list of most trusted ones here.
(Although we accept it here! And our software will allow you to accept it, too. Ask us how.)
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Some of the places that allow you to spend your bitcoins include Overstock.com, Expedia,
and Microsoft. Check out this list of places you can spend your bitcoins.
Or, you can see a visual map of your local area showing merchants accepting bitcoins.
Many people are using coins / tokens like bitcoins as an investment and cash out using
trusted digital asset brokers like Coinbase.
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Now that we understand what a bitcoin is a little better, let’s talk about some of the ways
people are using bitcoins that are making people, and nations, nervous: The ICO.
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An Initial coin offering (ICO) is an unregulated and controversial means of crowdfunding via
use of cryptocurrency, which can be a source of capital for startup companies. In an ICO a
percentage of the newly issued cryptocurrency is sold to investors in exchange for legal
tender or other cryptocurrencies such as Bitcoin.
The term is compared with 'token sale' or crowdsale, which refers to a method of selling
participation in an economy, giving investors access to the features of a particular project
starting at a later date. ICOs may sell a right of ownership or royalties to a project, in contrast
to an initial public offering which sells a share in the ownership of the company itself.
According to Amy Wan, a partner at Trowbridge Sidoti LLP practicing crowdfunding and
syndication law, "The coin in an ICO is a symbol of ownership interest in an enterprise—a
digital stock certificate, if you will."
As you can probably guess, an ICO is similar to an IPO, but in temporal reverse (sort of).
Although confusing, it has recently acquired prominence as a favored way to launch a new
cryptocurrency.
But as is typical of emerging cryptoproducts, there are legal questions and unethical players
in the mix. Let’s talk more about the role an ICO plays in the current cryptocurrency market.
ICO basics
An ICO is a fundraising tool that trades future cryptocoins in exchange for cryptocurrencies
of immediate, liquid value (like bitcoin). You give the ICO bitcoin or ethereum, and you get
some of Joey’s New Super Great Coin.
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The Financial Times calls ICOs “unregulated issuances of cryptocoins where investors can
raise money in bitcoin or other [cryptocurrencies],” which is accurate, especially if you
underline the word “unregulated.” We’ll get to that in a moment.
Sticking close to the older financial publications, The Economist also took a look at the
financing mechanism, describing what you buy in an ICO in the following fashion:
ICO “coins” are essentially digital coupons, tokens issued on an indelible distributed ledger,
or blockchain, of the kind that underpins bitcoin, a crypto-currency. That means they can
easily be traded, although unlike shares they do not confer ownership rights. […] Investors
hope that successful projects will cause tokens’ value to rise.
The referenced value increase is critical to understanding the appeal of ICOs. These are not
transactions of love. They are investments made in hopes of quick, strong returns.
Many ICOs will ask for Bitcoin (or other established cryptocurrency) in exchange for
whatever coin they are launching as part of their ICO. As bitcoin prices skyrocket, investors
are turning to ICOs as a way to make faster returns. Many are using fractions of bitcoins to
invest in these new coins that have the potential to grow at faster rates than the bitcoin.
In April of 2017, over 250 million had already been invested in ICOs.
Some analysts are predicting that countries will find ways to regulate these ICOs, making
these hot investment tools even more reliable and commonplace.
Right now, however, it is up to the individual investor to do the research and use a heavy
amount of skepticism when getting involved in an ICO, or investing in any kind of new
cryptocurrency. Because, obviously, not everyone involved in this industry is an upstanding
individual.
That leads me to our next topic, and the one you’ve been waiting for…
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Are there Bitcoin / cryptocurrency scams?
The answer is unequivocally yes. Just like there are scams involving the US dollar, and other
traditional forms of state-backed currency.
In the same way the thousands of dollars of fake currency are used to trick people and
businesses every year, false bitcoin companies talk a big game and then leave with people’s
hard-earned money without ever mining a coin.
Play it safe, particularly if you’re just starting out investing in cryptocurrency or getting
involved in a company using cryptocurrency, like an MLM.
CryptoBlogger recommends that as part of researching a potential new coin to invest in,
consider the important question of “Is there a purpose for this coin? Pick ones with the most
future potential or best potential application.”
For Angelina Lazar, OneCoin takes the day as the current number one scam coin in the
world. Lazar became popular for her war on OneCoin in recent years.
One common position adopted by the propagandists of OneCoin in recent times is the claim
that OneCoin is not a cryptocurrency yet. This argument always seems to arise as soon as
they realize that their product does not possess the fundamental characteristics of a genuine
cryptocurrency. How these followers tend to pursue the cause of OneCoin like a religion is a
development that is becoming a subject of keen interest.
To this effect, Lazar points out that the leaders at OneCoin have not relented in making
efforts to convince their followers around the world that they are now going public.
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She explains to Cointelegraph:
“Which exchange on the planet besides Nibiru would take that company public when their
whole management team is being investigated and their CEO is both on bail and on
probation simultaneously. That's two different cases in two different countries, mind you. And
when they have not one bank account in their name and even all their tertiary accounts
which they used for money-laundering in various other names were all shut down as well?”
Besides falsifying ICOs and taking investor’s money without ever launching a coin, other
scams involving cryptocurrency include:
False Ads
When a new ICO is about to launch, scammers will take out paid ads on Google or other
search engines. Investors will click on the ad and are taken to a website that is an identical
copy of the actual ICO’s website. The scammers offer their bitcoin address where investors
can send bitcoins to invest in the new ICO. Unwary investors will then send their bitcoin
investment to the scammers, instead of actually investing in the ICO.
Check and recheck your information when investing in ICOs. Network with other investors so
you can compare notes and experiences.
As with any aspect of this industry, do you research and implement a healthy dose of
skepticism before investing in any cloud mining.
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While billionaire investors shouldn’t necessarily drive all your investment decisions, it is
helpful to hear from some of the most successful people in the world and use their advice as
a guide.
"I think it's in a bubble. I just don't know when or how much it corrects," tweeted Cuban. He
went on to mention that when everyone is bragging about making easy money, it's a sign of
a bubble. When I think back to the tech bubble of the late '90s, or especially to the housing
bubble of the mid-2000s, this certainly makes sense. "Everyone always thinks that this time
is different," Cuban added.
While Cuban was tweeting his comments over a span of about an hour and a half, the price
of bitcoin noticeably fell. The billionaire felt that this was further proof of his point, and
tweeted a few hours later: "You know it's a bubble when a random twitter thread bounces the
price."
On the other hand, Cuban also praised blockchain, the underlying technology behind bitcoin.
"I think blockchain is very valuable and will be at the core of most transactions in the future,"
tweeted Cuban. "Healthcare, finance, etc all will use it."
https://www.fool.com/retirement/2017/06/15/what-3-billionaires-think-about-bitcoin.aspx
As a notably wise and respected investor, many of us want to know Warren Buffet’s opinion
about Bitcoin. Perhaps in his great wisdom, Buffet has refrained from commenting much on
the issue in recent years. In a 2014 interview with CNBC, he advised investors to avoid
bitcoin, comparing it to writing a check or sending a money order. Maybe in recent years he’s
changed his mind, or he is waiting like the rest of us to see where this strange new world of
currency takes us.
The billionaire investor who started the Virgin Group is well-known as one of bitcoin’s biggest
proponents. He’s referred to blockchain as an “economic revolution”.
At last year's Virgin Disruptors event in London, Branson specifically mentioned a potential
application of using the blockchain to create a better land titling system. He mentioned that
in developing countries, land titles are frequently forged or taken from the rightful property
owners, and said that a blockchain-based solution could solve this problem once and for all.
Branson has held an annual "Blockchain Summit" on his private island for the past two
years, which has resulted in several new ideas and partnerships.
In regards to bitcoin as a currency and whether or not it will work, Branson replied "Well, I
think it is working." However, Branson also acknowledged the currency's volatility, and that
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other similar currencies could emerge that "may be even better."
I started mining in 2012. I've always had an interest in hardware, and I'd read an article
somewhere that spoke of bitcoin as a viable alternative to standard banking, and how it was
generated by the power of the hardware I'd already invested in.
For a few months I mined bitcoin exclusively and made the (now very unfortunate) decision
in selling 93 bitcoin for a very paltry sum of cash. $2.13/btc. The market had crashed and alt
coins were on the horizon so I thought at the time I’d been cutting my losses.
I kept mining as a bit of a side hobby but nothing serious for the next couple of years.
I got back into crypto mining with etherium in early 2016, merely to test the new computer I'd
built for work. And have since mined ETH, LTC, XMR, and XRP. Depending on the current
difficulty I adjust what I mine.
I’ve also got an antminer that mines exclusively for bitcoin (BTC), however the difficulty to
mine BTC really has made that more of a side-tracked type of hobby.
It's a fun little hobby I can do with being a single dad and everything. It's fun to follow the
market, and watch my hardware generate revenue while I'm not using it for work.
The financial side of things is a little weird on my deal here. I work from the hardware as a
priority. So aside from the dated antminer, I'm normally only mining when I am not sitting at
my desk working. As of right now I'm sitting on a small portfolio of 3,395.72 worth of crypto.
While that number may seem small, I have actually already reimbursed myself the entire
cost of my hardware, and I pay my electrical bill every month directly from my crypto
reserves as well. So the $3k is a true total profit.
I was able to profit more than most would be able to by mining on a small scale, merely
because I take interest in watching the values of crypto rise and fall. I trade my crypto using
coinbase https://www.coinbase.com (primarily), and tend to trade into smaller coin (i.e. I use
the 'Buffet Rule' and split my investments).
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When I see a dip in a smaller coin that I know isn't as easy to mine (such as XMR) I grab a
couple using my bitcoin reserves as a bank account of sorts. If a smaller crypto such as
XMR can be bought at $120, and grows by $10, the rate of return is much greater than if Id
left it in Bitcoin and had just a small fraction of a bitcoin that raised by $100 at full coin
increments.
For example, a few months ago I was able to grab XRP (ripple coin) for under 5 cents. I
bought 300 of them for $16 in BTC after fees. Today that same coin is worth $.20 so I've
gained a 400% return on that investment, even though the currency isn't nearly as well
known.
I was able to see that ripple wasn't mined as frequently as other crypto currencies, while at
the same time it was lining up to be supported by many large platforms on the same week
that an Ether and Bitcoin major network change was going into effect.
Trusting that people would get nervous of a possible price fall on BTC and ETH I bought a
few smaller coins thinking that others would later do so in order to easily take a backseat in
case BTC or ETH took a fall on the network change.
Anyhow, I do it as a hobby really. It pays for my toys, and it's enjoyable without much
financial worry.
I don't have a lot of intelligent stuff to say about the opinions aside from it being fun to invest
in, and simple. I think the market will be forced to see crypto as a viable currency for online
purchases much faster than people expect, and I'm just happy to be somewhat ahead of the
curve. For a single Dad, having one less bill a month and a bunch of hardware paying for
itself is incentive enough, having an extra $3k that I wouldn't normally have is even better,
haha.
“In 2010, a client of mine asked about getting into bitcoin mining. After we spent some time
researching it, we decided against it. Do I ever wish I would have…
I had a lot of the same concerns that many people bring up now when we discuss my
involvement in cryptocurrencies. How do you trade an intangible produce? And if it is digital,
can’t someone just make more of it, and devalue it?
Because of the complicated nature of digital coins, and the questions like the ones above,
many people involved in the industry are brought in by someone they trust. In January of
2017, I had a friend who was really into Ether. He kept sending me screenshots of his
investment rising astronomically, and I decided to take a shot at it.
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It takes a little time to get set up with a wallet and connect it to your bank account, which can
be another barrier for people getting started. By the time I invested in May from the time I
had made the decision to invest, the value of ether had climbed another 100% or so.
Over the next few months, I’ve gotten heavily involved in investing. I spend 24/7 reading and
researching about coins. You can’t make quick money anymore just investing in bitcoin, so
we diversify and invest in smaller, new coins or ICOs. It can be hard to follow every new coin
out there, so I work together with a few friends and we split the work.
The most important thing about investing is doing your research. Be careful, but be ready to
take some risks.
As much research as I do, I’ve gotten scammed. I’ve invested in an ICO that was purely a
scheme and the people took our money and closed up shop, as far as we could tell. And
there have been other times I’ve almost sent my bitcoin to scammer posing as a legit ICO.
Unfortunately, you can’t get your money back once you’ve sent it to an address. I even had a
buddy who just mistyped an address and sent his bitcoin money to someone else.
The good news is that even though I’ve lost some money, I’ve made more than enough to
cover these losses and still come out way ahead.”
Do your research.
Diversify.
You can follow CryptoBlogger’s journey with cryptocurrency investing on his blog or his
Instagram.
Money is about to get more interesting folks. When I first really dug in and realized what
bitcoin was, I immediately knew that this is a game changer. Technology is one of the
primary forces of change, and something this revolutionary cannot be suppressed.
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Just recently a friend, David, personally introduced me to EOBot and Cloud Mining of
Cryptocurrency, and I could tell by his passion for this topic that I might have a lot to learn
from him. I’ve been hearing about various Cryptocurrencies, especially Bitcoin, for a while
now and I had considered the general idea to be intellectually stimulating. Needless to say it
didn’t take much encouragement from David to kickstart my desire to dig in and figure out
what all this Crypto stuff is about.
Straight up, I really don’t know what the heck I am doing. I honestly am just figuring this out
on my own and with friends as I go forward. I think if we work together we might just have a
shot of doing something at least, and hell at very least we might all learn something.
I am very clearly promising you nothing, you may lose everything you invest, and especially if
you’re like most people. I’ve been buying stock for years and I tell my friends “First off I
recommend you learn how to not lose money before you even think about making money”
and they all look at me funny like they don’t think I’m serious, but I’m very serious. I’ve
bought a lot of boogie stocks, and I’ve thankfully bought enough good ones and at the right
times that I’ve done well enough for myself. So, if you don’t know what you’re doing, you’re
probably gambling, and if you do know what you’re doing I can’t say because I don’t know
what I’m doing. Perhaps you could offer suggestions to me so I can learn from them and
share them if I find them valuable.
Currently, in the United States, bitcoin and other cryptocurrencies are classed as property,
and are taxed as such. "Every bitcoin transaction is taxable," writes Tyson Cross, a tax
attorney who specializes in virtual currencies. "Bitcoin users will have to calculate their gain
or loss every time they purchase goods or services with bitcoin."
Virtual currency "does not have legal tender status in any jurisdiction."
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"Virtual currency that has an equivalent value in real currency, or that acts as a substitute for
real currency, is referred to as 'convertible' virtual currency."
"Bitcoin can be digitally traded between users and can be purchased for, or exchanged into,
U.S. dollars, Euros, and other real or virtual currencies."
Tax Treatment:
"For federal tax purposes, virtual currency is treated as property. General tax principles
applicable to property transactions apply to transactions using virtual currency."
"A taxpayer who receives virtual currency as payment for goods or services must, in
computing gross income, include the fair market value of the virtual currency, measured in
U.S. dollars, as of the date that the virtual currency was received."
"Transactions using virtual currency must be reported in U.S. dollars" on the tax return.
"Taxpayers will be required to determine the fair market value of virtual currency in U.S.
dollars as of the date of payment or receipt."
"If a virtual currency is listed on an exchange and the exchange rate is established by
market supply and demand, the fair market value of the virtual currency is determined by
converting the virtual currency into U.S. dollars ... at the exchange rate, in a reasonable
manner that is consistently applied."
I can’t predict the future of bitcoin. I’ll leave that to the experts. I will leave you with a few
points:
1) Banning bitcoin in one of the world’s largest economies, China, did NOTHING to slow
down its growth, and it is now at a record high as I type this blog. Countries, politics,
borders… all these have little to do with cryptocurrency. As long as the Internet is
accessible, people are free to use the currency and its value can continue to rise.
2) Currently, there is a only a 1% penetration of bitcoin in the US. That is a massive potential
for growth. Some experts predict a 3% penetration in the first quarter of 2018.
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3) More merchants around the world are accepting bitcoins everyday. As people have places
to spend cryptocurrency, it will become more trusted and more used, increasing its value.
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